Alibaba, the Chinese e-commerce company, remains one of the largest companies that most people, at least in the West, have never heard of, despite having over 600 million customers.
Alibaba versus Amazon
The reason for this is that the vast majority of those customers are in China where Alibaba occupies a similar space to Amazon in North America and Europe. And like Amazon, Alibaba started as an online trading platform and has expanded to offer a wide range of services including online video services and cloud computing.
Again, like Amazon Alibaba also occupies a dominant position in its home market. And, with such a strong position in the world’s second-largest economy, it would be natural to assume that Alibaba is in a position to grow at an impressive rate – and it is. The Chinese company has announced that in Q4 2018 it experienced year-on-year growth of 41%, taking its revenues to the period to RMB 117.3 billion ($17.1 billion). In addition, its profits for Q4 rose to RMB 33.1 billion ($4.8 billion) from RMB 24.1 billion in the previous year.
The rise and rise of Alibaba
To further underline its meteoric progress, Alibaba announced that its retails operations had 636 million customers during 2018 – up from 601 million in 2017. In the B2B world, Alibaba saw its cloud computing revenues grow by 84% – a rate that most Western IT providers can only dream of. Its quarterly cloud computing revenues of RMB 6.6 billion ($962 million) also mark it out as one of the larger B2B providers globally.
Despite this success, Alibaba’s revenues are dwarfed by Amazon which generated $56.6 billion in revenues for Q3 2018 – more than triple those of the Chinses company. This comparison is not, however, necessarily fair.
Comparison with Amazon is unfair
Amazon is the older company, its home US market is the world’s largest economy, and it has a larger presence outside its home market than Alibaba.
Alibaba is growing faster than Amazon in terms of revenues, but in terms of market capitalisation, its position is strangely stagnant. Amazon was in December 2018, briefly, the world’s most valuable company with a market capitalisation of $865.3 billion. Alibaba’s market capitalisation peaked at a height of just over $500 million and now sits at around $430 billion.
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This fall is at odds with the company’s financial performance and is best explained by external factors. As noted above, although Alibaba is seeking to grow outside China, it is more reliant on its home market than Amazon. The on/off trade war between the US and China has also caused investors to hesitate. The threat of sanctions and ongoing challenges for another Chinese giant – Huawei – make concerns over Alibaba’s ability to compete in North America and Europe understandable.
Alibaba’s global expansion plans
Furthermore, Alibaba’s global expansion ambitions are primarily based on its cloud computing and AI capabilities rather than its retail and entertainment divisions. There is interest to support growth. Chinese companies are eager to grow into global markets and many are doing so. Alibaba is also an attractive partner for those outside the middle kingdom looking in.
Alibaba has the willingness to invest and revenue stream to allow it to potentially match and even, in the long term, even exceed Amazon. But whether this happens may be down to factors outside either company’s control.